2020 (11) TMI 1037 - AT - Income Tax

Addition for Short Term Capital Gain - capital gain u/s 45 - relinquishment of rights in property as in the nature of gift - whether in case of transfer of property by way of gift, the provision of section 50C can be invoked? - HELD THAT - AO while examining this transaction was of the view that this is a valid transfer as per provision of section 2(47)(i) of the Act and provision of section 50C of the Act are applicable as the consideration received is less than the value adopted by the Stamp Valuation Authorities. On the other hand, it has been contended by for the assessee that section 47(iii) clearly provides that nothing contained in section 45 shall apply to transfer of a capital asset under a gift or will or an irrecoverable trust . Therefore, the provisions to section 50C of the Act are not applicable. We have given our thoughtful consideration and observe that relinquishment of rights are referred to as the surrender of ownership rights and claims in a property in favour of another person. Through a relinquishment deed one person releases or transfers his legal right in the property to the other person, while a gift deed is a deed by which one person gifts his legal right in a property to any person. Relinquishment may or may not be for consideration but a gift does not require any consideration. In the instant case also all 4 co-owners have relinquished their rights in the said property without receiving any consideration. The said relinquishment of rights in the said property are in the nature of gift only as no consideration have been received and genuineness of the relinquishment deed has not been disputed by the authorities below. Section 47 provides for the transactions which are not regarded as transfer. If the case of a person does not fall u/s 47 of the Act then only all the remaining provisions of section 45 to 55A come into operation, which also includes substantial provision for full consideration in certain cases i.e. section 50C of the Act. As far as, the case in hand is concerned as we have held above that the alleged transaction is in the nature of gift/relinquishment of rights. There is no doubt that there is a transfer of the immovable property as provided in section 2(47)(i) of the Act but this being a definition of transfer is applicable to whole of the income tax wherever the word transfer is mentioned. However for the purpose of computing capital gain the hurdle of section 47 needs to be cleared before computing capital gain. Section 47(iii) states that nothing contained in section 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. Assessee s case is covered in section 47(iii) of the Act as the transfer/relinquishment of rights/gift is out of the purview of the provisions of section 45 of the Act. It is also judicially settled that section 50C of the Act is part of the chapter (IV)(E) of the Act and can be applied only if the case of assessee primarily falls u/s 45 of the Act. Since in the case of assessee transaction is not falling in section 45 of the Act, there is no room available for the revenue authorities to invoke the provisions of section 50C of the Act which in itself requires that firstly consideration should be received and secondly consideration so received is less than valuation adopted or assessed or assessable by the Stamp Valuation Authority but in case of assessee NIL consideration is received. We the relinquishment of rights in the said property made by the assessee is in the nature of gift along with other co-owners for which no consideration was received and since this transaction of gift, it is out of the purview of section 45 and also provisions of section 50C are not applicable on the transaction referred in the instant appeal. - Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings initiated under Section 147 of the Income Tax Act.
2. Applicability of Section 50C in the absence of consideration for the transfer of property.
3. Treatment of the relinquishment of property rights as a gift under Section 47(iii) of the Income Tax Act.
4. Examination of whether the transaction falls under the purview of Section 45 for computing capital gains.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated under Section 147 of the Income Tax Act:
The assessee initially contested the initiation of proceedings under Section 147, claiming it was without jurisdiction and that the objections to the reopening were not adequately addressed. However, at the outset, the counsel for the assessee requested not to press ground no.1 and 3 related to this issue. Consequently, these grounds were dismissed as not pressed.

2. Applicability of Section 50C in the absence of consideration for the transfer of property:
The Assessing Officer (AO) observed that the assessee, along with other co-owners, relinquished their rights in an immovable property without receiving any consideration. The AO invoked Section 50C, which deems the value adopted by the Stamp Valuation Authority as the full value of the consideration received for the purpose of computing capital gains. The assessee contended that the relinquishment was a gift, which is not considered a transfer under Section 47(iii). The Tribunal noted that Section 50C applies only if there is a consideration received, which was not the case here. Since no consideration was received, the provisions of Section 50C were deemed inapplicable.

3. Treatment of the relinquishment of property rights as a gift under Section 47(iii) of the Income Tax Act:
The assessee argued that the relinquishment of rights was a gift, exempt from capital gains tax under Section 47(iii). The AO and CIT(A) did not accept this argument, but the Tribunal found merit in the assessee's claim. The Tribunal observed that the relinquishment deed was genuine and no consideration was received, making it a gift. As per Section 47(iii), transfers by way of gift are not considered transfers for the purpose of capital gains computation, thus exempting the transaction from capital gains tax.

4. Examination of whether the transaction falls under the purview of Section 45 for computing capital gains:
The Tribunal emphasized that for computing capital gains, the transaction must first be recognized as a transfer under Section 45. Since Section 47(iii) excludes gifts from being considered transfers under Section 45, the Tribunal concluded that the assessee's case did not fall under Section 45. Consequently, the provisions for computing capital gains, including Section 50C, were not applicable.

Conclusion:
The Tribunal ruled in favor of the assessee, holding that the relinquishment of rights in the property was a gift, not subject to capital gains tax under Section 45. The addition of ?6,63,525 as Short Term Capital Gain was deleted, and the applicability of Section 50C was negated due to the absence of consideration. The appeal was partly allowed, with the Tribunal setting aside the findings of the CIT(A) on this matter.

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